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A communication breakdown.

Mark Tenhundfeld, the senior vice president of the Office of Regulatory Policy of the American Bankers Association, speaks quietly and deliberately. He personifies in his bearing exactly what he is, a Yale University graduate and a sober, educated observer of Washington, D.C., and its attempts to regulate, some might say interfere with, the workings of the American financial sector.

So when he says something like "Mark-to-market accounting is killing this industry," which is what he said on Jan. 27 at the ABA's Insurance Risk Management Annual Conference, perhaps we should pay attention.

Under mark-to-market accounting, the SEC requires that the value of corporate assets have to be accounted for and reported on the value they hold that day or that quarter, regardless of whether the holder plans to sell them or not.

The SEC's stated intention in requiring this type of accounting seems fairly noble: Investors and the public have a right to know the present-day value of the investment a bank or some other institution holds.

But in the reporting of results based on mark-to-market accounting and how perverted those results have become based on the devaluation of such things as mortgage-backed securities, the financial industry and the journalists who cover it may have fumbled the ball somewhat:

At many banks, cash flows, a truer measure of solvency, are positive, so why are the representatives of taxpayers throwing hundreds of billons of dollars at U.S. banks?

In the psychology of the marketplace, the way financial information is communicated is extremely important and collectively, we're doing a very bad job of it.

Dan Reynolds

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Author:Reynolds, Dan
Publication:Risk & Insurance
Date:Mar 1, 2009
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